A big boost for business from pricing local risks: international standards for assessing country risk

RMA Journal, The, May, 2003 by George J. Vojta, Carl F. Adams

Investigation--chant the mantra of thorough due diligence for each business agenda as it examines commercial opportunities in a given location against the outline of the 12 standards and codes of universal best practice.

Discrimination--assign and price for the differences, both positive and negative, that are evidenced by the education and investigation of your own enterprise agenda.

Valuation--price your products and services according to the discrimination judgment for fair and honest returns on identifiable risks from compliance and noncompliance with the global standards of best practice.

This prescription summarizes the goal and ambition of a not-for-profit, private initiative--the Financial Standards Foundation (see sidebar). The central belief of this foundation is that a strong, prosperous flow of private capital available for sustainable development of a national and subnational jurisdiction is the single best contributor to improved human welfare in all locations. The "power of the private purse" and its underutilized leverage and influence in the global financial architecture is a worthwhile objective for successful business, for healthy competition, and for a better world. The philosophy of transparent disclosure is the foundation's central theme by purpose and is based on its founder's and principals' considerable experience with banking and capital markets since the early 1960s.

To promote the recommendations for education, investigation, discrimination of risk, and the empowerment of pricing for country compliance with international standards and codes, the Foundation provides a Web site for the marketplace with information and disclosure of country behaviors. This service, delivered by the Foundation's fully owned organization, eStandards Forum, posts public evidence and evaluation of 83 countries' compliance with all 12 standards and codes, their degree of compliance on a uniform and objective register, and a numeric index of compliance for reference and ranked comparison by standards and among countries. This database of information is slated to be expanded to cover a total of 183 national jurisdictions.

The information on the eStandards Forum Web site (see Note at conclusion of article) is freely available to all market participants who register to use its resources. Suggestions for using this resource illustrate the potential for business success, the competitive opportunities it might underwrite, and the power for influence on the global financial architecture it accrues to the private sector. For example, the most recent numeric index for the 83 countries evaluated by eStandards Forum shows that two very wealthy but small national jurisdictions possess compliance risks not evident from their national accounting and external debt ratings. A few of the interesting findings include the following:

* Singapore scored 26.15 out of a possible 100 (full and complete compliance with all 12 international standards) and ranks 50th on the 83-country List.